Prices and knowledge: A market-process perspective

102 Prices and knowledgeThe identification of advantages of the market (‘speed’ ofresponse) and of central planning (’quality’ of response) suggests toNelson the existence of a trade-off that may provide support for somecombination of both systems (such as indicative planning or an‘industrial policy’). In this respect, he says that ‘it is no wonder thatmany countries that have expressed strong general adherence toprivate enterprise have established mechanisms to try to makeindustry responses to changed conditions proceed in a more orderlyand coordinated fashion, and to guide those processes so as to reducethe extent of income losses and individual hardships’ (ibid.: 104). 8A MARKET-PROCESS PERSPECTIVEOn poorly articulated and informal theorizingNelson’s description of the argument of advocates of free enterprise as‘informal’ and ‘poorly articulated’ may be due to his holding the quitegeneralized view, mentioned before, of what constitutes appropriatetheory. In spite of his professed disagreements with equilibriumanalysis, Nelson favors a mathematically formalized approach toeconomics. He therefore wants a ‘well-worked-out generally acceptedformalism which explains how a decentralized market system tracks amoving target…’ (Nelson 1981:102–3).Nelson says that ‘to someone who proposes that private enterpriseresponds accurately to changed market conditions, the failure ofgeneral equilibrium theorists to prove stability, save under verystringent conditions, should be a severe embarrassment’ (ibid.).However, the literature dealing with the stability of general equilibriumcould only provoke embarrassment if there were reason to believe ithas modelled adequately the cognitive abilities of individuals in amarket process. But, as shown in chapter 2, sophisticated theorists inthis field of inquiry, such as Hahn and Fisher, have expressed greatdissatisfaction in this respect. It is an agreed-on fact that no generallyaccepted formal theory of the disequilibrium behaviour of individualsexists yet. Furthermore, some theorists have argued that such a theorymay not even be possible for any reasonably realistic setting. 9 Nelsonthus assigns too much importance to the very limited results obtainedby stability analysis. 10Although there is therefore no reason for market advocates to be‘embarrassed’, Nelson’s complaint about the absence of a generally